GST, demonetisation impacted business confidence: NCAER

Delhi-based National Council of Applied Economic Research in a report said besides note ban, firms’ confidence also got hit by the expected roll out of GSTKirtika Suneja | ET Bureau | September 23, 2017, 12:47 IST

Delhi-based National Council of Applied Economic Research (NCAER) in a report said that besides demonetisation, firms’ confidence also got hit by the expected roll out of the Goods and Services Tax (GST).

“While firms experienced restoration of normalcy in terms of the availability of cash but the then impending implementation GST had also increased wariness about the impact on business,” NCAER said in its latest quarterly Business Expectations Survey.

The survey elicits responses from firms/industries across six cities to assess business sentiments and represented in terms of ownership type, industry sector and firm size based on their annual turnovers.

The survey showed that the NCAER Business Confidence Index (N-BCI) fell 2.5% in July 2017 over April 2017 on a quarter-on-quarter basis.

The business sentiments survey was carried out in June before the GST implementation.

Indian economy grew 5.7% in the April- June quarter, slowest in three years, as de-stocking activities undertaken by manufacturers ahead of GST rollout and lingering impact of demonetisation hit economic activity.

“The N-BCI has shown large swings since de-monetisation was implemented on November 8, 2016,” the think tank said.

In January 2017, the N-BCI fell 16% before improving 24.6% in April 2017 on a q-o-q basis.

“The aggregate change of N-BCI in July 2017 had significant variation across regions, sectors, firm sizes and ownership types, thereby reflecting a sense of uncertainty,” it added.

The large variation in the business sentiments of firms across sectors in July was evident in the index of consumer durables and the intermediate goods sectors which improved 20% and 1.7%, respectively, on a quarterly basis.

The BCI of the capital goods and consumer non-durables sectors declined by 13.5% and 10.3%, respectively. The BCI of the services sector showed a fall of 5.3% between April and July 2017.

Overall, as per the survey, sentiments regarding production, domestic sales, exports, imports of raw materials, and pre-tax profits remained subdued in July over April. These subdued sentiments were broad-based with all the sectors showing declining trends between the two quarters.

GST was rolled out on July 1.

“There was a considerable deterioration in the situation pertaining to labour employment and wages over the last three months, and expectations about future labour employment and wages were further subdued,” the report showed.

Political outlook cloudyOn the political front too, the outlook was subdued as expectations pertaining to seven of the eight components showed deterioration in sentiments over the last quarter.